A Roth conversion
Question: I have a very small traditional ira and would like to convert it to a Roth ira…. is there a way to do this without penalty? Elle, Birmingham, AL
Answer: You can convert a traditional IRA (funded with pretax dollars) into a Roth IRA (funded with aftertax dollars) without paying a penalty. However, you will owe income taxes on the amount you convert.
A reasonable rule of thumb is that it doesn’t pay to convert unless you have the savings elsewhere to pay the income tax bill.
To get a better understanding of conversion check-out the free calculator here.
Marketplace is on a mission.
We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.
Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?